Will an Unlimited Vacation Policy Work for My Business?

HCM

Article

09/19/2017

As a business owner, you want to be on top of employee benefits trends. Some companies are offering an unlimited vacation policy, or unlimited paid time off (PTO). But while this benefit is gaining traction, just 4 percent of U.S. businesses currently offer this benefit, according to SHRM's 2017 Employee Benefits report.

The policy allows employees to use as much vacation, sick, or personal time as they need within reason and as long as they get their work done. As you might imagine, this arrangement comes with its share of pros and cons.

If you are considering an unlimited vacation policy for your employees, it's worth taking a look at the potential impact it could have on your business. We developed this list of some advantages and disadvantages as a guide.

Potential advantages of an unlimited vacation policy may include:

Useful recruiting incentive for potential employees.

Improved productivity, morale, and employee retention.

Streamlined administration for both companies and their employees.

Less burnout among employees because they can take time as they need it.

Allowing sick employees to stay home to recover, possibly avoiding the spread of illness at work.

Avoiding the end of the year vacation rush to "use it or lose it."

Possible elimination of the need to pay out accrued vacation time at termination or exit. Be sure to comply with applicable laws and regulations.

Accrued vacation time no longer appears as a liability on the balance sheet.

Potential disadvantages of an unlimited vacation policy may include:

Abuse of the policy.

May increase the cost of paid time off benefits.

Resentment from employees toward colleagues who are perceived to misuse the policy.

The challenge of managing the benefit fairly and consistently as well as in compliance with required time off under federal, state and local laws and regulations.

Can be overwhelming and employees may end up taking less time off.

Is not feasible for all types of employment; environments where coverage is critical such as call centers, manufacturing facilities, healthcare, retail establishments, etc.

Resentment over inability to accrue time to be paid out.

May make it difficult to discipline employee based on absences.

Offering unlimited paid time off does not release an employer from remaining compliant with federal, state, and local laws and regulations.

A successful unlimited PTO policy requires solid guidelines, good management, and support from senior leaders and human resources. Different companies with the same unlimited vacation policies can experience dissimilar outcomes. Some key factors include:

How thoroughly you evaluate the suitability of the policy for your business;

Communication to employees and dissemination in a manner that conveys company expectations; and

How well you manage this policy over the long-term.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.

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